The investigation to recover the haul involved an undercover Spanish police officer posing as an art dealer.

He lured the suspects to a Madrid hotel under the presence of buying a painting by Dutch master Pieter Brueghel.

While the painting the suspect had was real, many of the individuals in and around the hotel were not -- scores of undercover police were dressed as beggars and street cleaners.

As soon as the painting's identity was confirmed by an FBI expert posing as an art professor, the two suspects were arrested.

A further nine works of art were found in the boot of a nearby car, among them "The Swing" and "The Donkeys Fall" by Goya, Tsuguharu Foujita's "Child with Hat", Camille Pissarro's "Landscape at Eragny" and "The Temptations of St. Antonio" by Pieter Brueghel.

The suspects had planned to show them to the undercover agent after the first sale was completed.

Police said the two men arrested, Juan Manuel Candela and Angel Suarez, were members of a well-known gang of bank robbers.

A third man, Luis Miguel del Mazo, who worked as a security guard at Koplowitz's residence, turned himself in to police after the arrests.

Police say they are still working to recover the other stolen paintings, which include Goya's "The Donkey's Fall" and a canvas by Cubist painter Juan Gris, "Guitar on a Chair."

"The operation remains open until we have recovered all of the missing works," police chief Juan Cotino told a news conference Monday.

He added: "It's the most important art seizure in the last decades internationally, both for its artistic and economic value."